Implication of theory of games on inventory control policies: Pricing strategies, inventory levels and re-manufacturing

Document Type

Conference Proceeding

Date of Original Version



One of the most profitable operations of a company is its spare parts business. In recent years, cooperative and non-cooperative games have been used to model several supply chains with single and multi-period settings. In this paper we study a spare parts inventory problem and model it as an N-person, non-zero-sum single-shot game in which players play simultaneously. The model is restricted to a non-cooperative three-person (two manufacturers and the market) game. The market is an unreasoning entity whose strategic choices including a bargain seeker or a price taker affect the payoff the manufacturers. The will-fitter has a fixed pricing strategy but the OEM can decide on his sale price to compete with the will-fitter. This interaction is modeled as the game against nature which means the manufacturers play against the market. The game is designed from the OEM viewpoint and it has no dominant strategy. A mixed-strategy solution that determines optimal strategies of the OEM to maximize his payoff in the aftermarket business is developed. An alternate scenario, where the OEM can implement re-manufacturing processes to manufacture more sustainable parts with cheaper costs is also considered to determine the optimal re-manufacturing effort.

Publication Title, e.g., Journal

IIE Annual Conference and Expo 2014

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